OHIO LEGISLATIVE SERVICE COMMISSION
Office of Research Legislative Budget
www.lsc.ohio.gov and Drafting Office
S.B. 21 Bill Analysis
133rd General Assembly
Click here for S.B. 21’s Fiscal Note
Version: As Reported by House Civil Justice
Primary Sponsor: Sen. Dolan
Effective Date:
Yosef Schiff, Attorney
SUMMARY
Benefit corporations
Allows certain corporations to become benefit corporations – a corporation whose
articles of incorporation include a purpose to have a bona fide positive effect or to
reduce one or more bona fide negative effects of an artistic, charitable, cultural,
economic, educational, environmental, literary, medical, religious, scientific, or
technological nature for the benefit of persons, entities, communities, or interests aside
from shareholders.
Requires the beneficial purpose to be expressly stated in the benefit corporation’s
articles of incorporation.
Prohibits a corporation from using “benefit” or “b-” as a prefix to the corporate
designation in its name unless the corporation is a benefit corporation.
Allows a benefit corporation’s articles, regulations, or agreement to require that a
report detailing the activities of the corporation toward the corporation’s beneficial
purposes be presented to the corporation’s shareholders at the corporation’s annual
meeting and permits shareholders to request a copy of that report.
Specifies that a benefit corporation and its directors owe no duty to a beneficiary of the
corporation’s beneficial purpose solely because of that person’s status as a beneficiary.
Requires a benefit corporation director, in determining what is in the best interests of
the corporation, to consider any beneficial purpose and related provisions set forth in
the corporation’s articles and any priority among the purposes set forth in the articles.
Allows a benefit corporation, its directors, certain shareholders, or certain other persons
to undertake legal action to require the corporation to pursue its beneficial purposes
when the corporation fails to do so.
May 14, 2020
Office of Research and Drafting LSC Legislative Budget Office
Corporations generally
Allows a corporation to prioritize among any of the purposes listed in its articles.
Specifies that a corporation that is not a benefit corporation is not required to operate
exclusively for profit or distribution of net earnings in all instances.
DETAILED ANALYSIS
Formation and purpose of benefit corporations
The bill allows the formation of benefit corporations under Ohio’s General Corporation
Law. Under continuing law, a corporation can be formed for any purpose that individuals may
lawfully associate. Under the bill, a corporation’s purpose may also be, or include, a beneficial
purpose. “Beneficial purpose” means seeking to have a bona fide positive effect or to reduce
one or more bona fide negative effects of an artistic, charitable, cultural, economic,
educational, environmental, literary, medical, religious, scientific, or technological nature for
the benefit of persons, entities, communities, or interests other than shareholders in their
capacity as shareholders.
The bill requires, for the formation of a benefit corporation, that a beneficial purpose be
expressly stated in the articles of incorporation. Generally, the inclusion of a beneficial purpose
does not prevent a corporation from pursuing the other purposes for which it was formed,
including pecuniary gain, and no particular purpose has priority over another. But, the bill does
allow the articles of incorporation to set a priority or method for balancing the corporation’s
purposes. This new provision regarding priority of purposes is not limited to benefit
corporations, however; it applies to all corporations generally.1
For corporations without a beneficial purpose, the bill establishes that they are not
required to operate exclusively for profit or distribution of net earnings in all instances.2
Prohibition on certain corporations becoming benefit
corporations
Under the bill, a corporation that meets both of the following is prohibited from
amending its articles of incorporation to include a beneficial purpose:
The corporation has issued and has outstanding shares listed on a national securities
exchange or regularly quoted in an over-the-counter market by one or more members
of a national or affiliated securities association.
The initial articles of the corporation did not include a beneficial purpose.3
1
R.C. 1701.01(FF) and (GG), 1701.03(A)(1), (2), and (4), and 1701.04(B)(3).
2
R.C. 1701.03(A)(3).
3 R.C. 1701.03(A)(5).
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Benefit corporation name
Continuing law requires a corporation to designate its incorporated status by including a
corporate designation in its name. Some examples of this include “company,” “co.,”
“corporation,” “corp.,” “incorporated,” and “inc.” As it relates to benefit corporations, a
corporate designation can only include “benefit” or “b-” as a prefix if it is in fact a benefit
corporation. This requirement does not apply to a corporation that had “benefit” or “b-” in its
name prior to the bill’s effective date.4
Benefit corporation reports
Corporations, including benefit corporations under the bill, are generally required to
have an annual meeting of shareholders for the election of directors and the consideration of
reports.5 Under continuing law, financial statements with specific sets of information must be
laid before shareholders at that meeting. If a corporation becomes a benefit corporation, under
the bill, the corporation may require, in its articles, regulations, or a written agreement, that a
written statement or report concerning its beneficial purposes and its activities toward those
purposes be presented at its annual meeting.6
The bill also extends the existing distribution requirements for financial statements to
beneficial purpose statements or reports.
If a benefit corporation’s shareholder meeting is held only through communications
equipment, the corporation must make the statement or report regarding its beneficial
purposes, if one is prepared, open to examination by any shareholder or proxyholder during the
whole time of the meeting on a reasonably accessible network. A corporation or responsible
corporate officer that fails to comply with this requirement is subject to a $100 forfeiture. 7
The statement or report must also be sent to shareholders who timely request it. Under
continuing law and the bill, respectively, a corporation or responsible corporate officer that fails
to timely present its shareholders with a properly requested financial statement or report
regarding beneficial purposes is subject to a $100 forfeiture and an additional $10 forfeiture for
each day the failure persists (see Comment).8
Also under continuing law, a close corporation may dispense with an annual meeting
through its close corporation agreement. In such a case, the bill demands that any required
statement or report regarding beneficial purposes be delivered to each shareholder on or
before the last date the annual meeting could have been held.9
4
R.C. 1701.05(A)(1) and (2).
5
R.C. 1701.39, not in the bill.
6
R.C. 1701.38(A).
7
R.C. 1701.38(D) and 1701.94(A)(5).
8
R.C. 1701.38(C) and 1701.94(A)(4).
9
R.C. 1701.591.
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Duties relating to the beneficial purpose
A benefit corporation’s duties to beneficiaries
The bill provides that a benefit corporation owes no duty to a beneficiary of its
beneficial purpose based solely on the beneficiary’s status as a beneficiary.10
A benefit corporation director’s duty to beneficiaries
The bill limits the duties a benefit corporation director owes to a beneficiary of the
corporation’s beneficial purpose. Continuing law requires that a corporate director perform the
director’s duties in good faith, in a manner that the director reasonably believes is in, or not
opposed to, the corporation’s best interests. It also requires the director to use the care that an
ordinarily prudent person in a like position would exercise under similar circumstances.
Under the bill, the director does not owe those duties to a beneficiary of the beneficial
purpose, solely on the basis of that person’s status as a beneficiary. In determining what the
director reasonably believes to be in the best interests of the corporation, continuing law
requires that the director consider the interests of the corporation’s shareholders, and the bill
requires that the director consider any beneficial purpose and related provisions set forth in the
corporation’s articles. The director also must consider any priority among purposes provided in
the articles. Finally, under continuing law, the director may consider several factors in
determining the best interests of the corporation, including the possibility that the
corporation’s long- and short-term interests may be best served by the corporation’s continued
independence. The bill adds, in addition to this possibility, the possibility that any of the
corporation’s beneficial purposes may be best served by the corporation’s continued
independence.11
Obtaining relief from a benefit corporation
A benefit corporation is not liable in monetary damages for any failure to seek, achieve,
or comply with any declared beneficial purpose.
An action to require a benefit corporation to comply with a beneficial purpose can only
be brought by the benefit corporation itself or in a derivative action on behalf of the benefit
corporation. Derivative suits may only be brought by certain people:
A director of the corporation;
Persons who in the aggregate hold 25% of all outstanding shares with voting power,
unless the articles or regulations set a smaller proportion;
Persons who in the aggregate hold shares of at least $2 million in market value, if the
benefit corporation has outstanding shares listed on a national securities exchange or
10
R.C. 1701.96(A).
11
R.C. 1701.59.
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regularly quoted in an over-the-counter market by one or more members of a national
or affiliated securities association;
Any person granted that authority by the corporation’s articles or regulations.
The bill also establishes that its new provisions do not alter a benefit corporation’s
obligation to comply with its contracts or other laws that are generally applicable to domestic
corporations. Nor do those provisions limit or restrict the imposition of any remedy granted
under contract or generally applicable laws.12
COMMENT
Existing law requires a corporation to send a shareholder, upon proper request, a copy
of the financial statement laid, or to be laid, before the shareholders at an annual meeting. The
report must be sent by the later of two dates, the first being the fifth day after the written
request is received, and the second being the earlier of the fifth day before the annual meeting
or four months and five days after the date of the balance sheet in the financial statement. The
bill adds written statements or reports regarding a benefit corporation’s beneficial purposes to
the documents a shareholder may request but does not change the provisions regarding when
they must be provided.13 As a result, the bill uses a date in the financial statements to
determine the delivery deadline for reports regarding beneficial purposes.
HISTORY
Action Date
Introduced 02-12-19
Reported, S. Judiciary 02-28-19
Passed Senate (32-0) 03-06-19
Reported, H. Civil Justice 05-13-20
S0021-RH-133/ar
12
R.C. 1701.96(B) to (D).
13
R.C. 1701.38(C).
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Statutes affected: As Introduced: 1701.01, 1701.03, 1701.04, 1701.05, 1701.38, 1701.59, 1701.591, 1701.94
As Reported By Senate Committee: 1701.01, 1701.03, 1701.04, 1701.05, 1701.38, 1701.59, 1701.591, 1701.94
As Passed By Senate: 1701.01, 1701.03, 1701.04, 1701.05, 1701.38, 1701.59, 1701.591, 1701.94
As Reported By House Committee: 1701.01, 1701.03, 1701.04, 1701.05, 1701.38, 1701.59, 1701.591, 1701.94